Contrary to popular belief, investment research firm BCA Research anticipates that the economy is teetering on the brink of a recession, and the anticipated upcoming U.S. Federal Reserve rate cuts are unlikely to be adequate to pull markets out of it. Garry Evans, the chief strategist of global asset allocation at BCA Research, stated in an interview with CNBC’s “Squawk Box Asia” that every member of their team now believes a recession is imminent, which contrasts sharply with the market sentiment.
Evans highlighted indicators of a slowing economy, such as the “deteriorating” U.S. labor market. The U.S. Labor Department reported a rise in the unemployment rate to 4.3% in July, the highest since October 2021, and a measure of U.S. manufacturing activity dropped to an eight-month low in the same month. The strategist remarked that certain aspects of the economy are deteriorating rapidly.
The Fed funds futures market indicates that investors are anticipating a minimum of three rate cuts by the year’s end, as per the CME FedWatch Tool. However, Evans believes that these cuts will have minimal impact on his forecasts. He stated that a few rate cuts will not avert a recession, as the average recession lasts around 10 months, and it typically takes about a year for Fed cuts to stimulate the economy.
Evans added, “The market anticipates that the fed fund rate will be at 3% by the end of next year, compared to the current 5.3%. This scenario is unlikely unless a recession occurs.” A recession typically occurs when a country’s real GDP experiences two consecutive quarters of decline.
Traders are closely monitoring the annual economic policy symposium in Jackson Hole this week, where Fed Chair Jerome Powell is scheduled to speak on Friday. This event could provide more clarity on the interest rate outlook. Despite persistent inflation and high interest rates, the U.S. economy has remained resilient.
Throughout the last century, there have been over a dozen recessions, some lasting up to a year and a half. While the U.S. has not officially entered a recession, a survey conducted by Affirm indicates that approximately three out of five Americans believe otherwise.
